MKH Annual Report 2017

2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (continued) (c) Significant accounting estimates and judgements (continued) (ix) Inventories (Note 21) - the saleability of inventories are reviewed by management on a periodic basis. This review involves comparison of the carrying value of the inventory items with the respective net realisable value. The purpose is to ascertain whether a write down to net realisable value is required to be made. (x) Provision of post-employment benefit obligations (Note 26) - the provision is determined using actuarial valuation prepared by an independent actuary. The actuarial valuation involved making assumptions about discount rate, future salary increase, mortality rates, resignation rate and normal retirement age. As such, this estimated provision amount is subject to significant uncertainty. (xi) Revenue and cost recognition for intangible asset model (Note 11) - a subsidiary, which adopts the intangible asset model has recognised a construction margin of 7% in the construction of commuter station. Income and expenses associated with the said construction are recognised based on percentage of completion method. The estimated margin is based on relative comparison with general industry trend although actual margins may differ due to location, materials and other pricing considerations. (xii) Tax litigation in Indonesia (Note 32) - significant judgment is required in determining the tax litigation status in Indonesia. This judgement involves the understanding of relevant case facts, past experience and updates on the tax assessment status from time to time. Should it be probable that an outflow of resources will be required to settle the obligation, a provision may be required. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by the Group, unless otherwise stated. (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Group: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Notes to the Financial Statements For the Financial Year ended 30 September 2017 100 MKH Berhad • Annual Report 2017